Status: 02/22/2021 6:59 p.m.
Investors are currently going public with empty corporate cloaks. Over time, real companies should slip into their coats. The se stock exchange vehicles are booming in the USA. Now they are coming to Germany.
by Notker Blechner,
The y are called the Special Purpose Acquisition Company, or SPAC for short, and they are all the rage in the US. From January to mid-February there were already half as many SPACs as in the whole of last year. In 2020 there were 250 IPOs with these stock exchange vehicles. The y are now worth nearly $ 80 billion.
Lakestar starts successfully on the Frankfurt Stock Exchange
Now the wave is spilling over to Germany. On Monday, the first German SPAC in ten years went public: the Lakestar SPAC I, which was founded by startup investor Klaus Hommels. The first price was set at 11.15 euros – and was thus more than eleven percent above the allocation price. Lakestar SPAC I had allocated 27.5 million units at the standard price of ten euros. According to financial insiders, the units were oversubscribed about eight times.
Investors who invest in such a SPAC are buying “a pig in a poke”. When you go public, you only know which criteria are used to select the company to be bought, i.e. which industry it comes from or which trend it should follow – for example digitization, sustainability or e-mobility. The SPAC investors give the initiators of the stock market vehicle a “blank check”, which is why SPACs are also called “blank check companies”.
Lakestar founder Klaus Hommels has placed the first SPAC on the Frankfurt Stock Exchange since 2008.
“Blank check” for a takeover in two years
The managers or investors who run the SPAC generally have two years to find a suitable target company to slip into the shell of the stock market. As long as the money collected during the IPO is in an escrow account. If the owners of the company agree to the takeover, they can exchange their shares for shares in the SPAC. In addition to a share, the units also contain a warrant for additional shares (or a fraction of them), which can only be drawn when the SPAC swallows a company.
Finally, the SPAC shareholders have the final say. You have to agree to the merger – usually at a general meeting. If you do not agree, you can return your shares and get your money back. If there is no majority for the takeover, the SPAC will be liquidated and the money collected will be distributed.
Investors get money back, but …
If investors get out, they get their money back – the issue value of the unit certificates, which is usually ten dollars. The catch: The y often paid more than ten dollars for the shares, as most SPACs often quote above their issue value. In this respect, a SPAC investment can turn into a losing business.
If the shareholders remain loyal to the SPAC and agree to the takeover of the target company, they have the chance of tremendous price gains. The price of the SPAC operated by Live Oak Acquistion Corp quadrupled to more than $ 39 after the bioplastics pioneer Danimer was taken over and slipped into the empty shell. In classic IPOs by hype companies, private investors often only get a chance when the shares have already risen sharply.
Mostly price losses after the deals
Success stories like Danimer have so far been the exception at the SPACs. In a statistical analysis from the beginning of 2019 to mid-2020, two professors in the USA found that the prices of the SPACs plummeted by twelve percent in the first six months after the takeover deal, while the Nasdaq rose by 30 percent in the same period. Only the sponsors of the SPACs earned a whopping three-digit return.
In addition, SPACs are not immune to scandals. The Greek music streaming service Akazoo, which was taken over by the SPAC of the American radio entrepreneur Lew Dickey in 2019, had to admit systematic fraud against former managers and partners in May 2020. The stock was then removed from the Nasdaq listing.
The re were also some inconsistencies with the self-proclaimed Tesla competitor Nikola, which wants to bring electric trucks onto the market.
Germany 1 did not have a good hand
The first German SPAC is also a bad omen, the company Germany 1, founded in 2008 by ex-Arcandor boss Thomas Middelhoff, consultant Roland Berger and ex-banker Florian Lahnstein. In autumn 2009 it took over the majority of the power supply device manufacturer AEG Power Solutions.
The company later failed.
Ultimately, private investors should carefully check the SPAC’s prospectus before buying shares in the stock market vehicle, experts advise. If they are then in the SPAC, they should regularly follow what the initiators of the SPAC are planning.
Companies go public faster
In addition to the possible attractive returns that a SPAC can bring to private investors, it is above all the companies they take over that benefit from the new type of stock market vehicle. You can get to the stock exchange faster and cheaper via the back door. This is a huge incentive, especially for young growth companies.
SPAC initiators make big bucks
And the SPACs are also attractive for the initiators because they are rewarded for their efforts. As a rule, they get 20 percent of the empty wallet without taking any money into their own hands. No wonder that several prominent managers, bankers and investors collect “blank checks” for their SPACs. The former Commerzbank boss Martin Blessing, the former Siemens boss Klaus Kleinfeld, the hedge fund billionaire Bill Ackman and Bernard Arnault, richest man in Europe and majority owner of LVMH, are hoping for millions or even billions of euros in income.